A merger between Dubai's Emaar Properties and three local firms is likely to be more distressing than supportive due to strategy uncertainty and exposure to the suffering property sector, EFG-Hermes said.
Dubai Holding, owned by the ruler of Dubai, and Emaar said last month the builder of the world's tallest tower would merge with Dubai Properties, Sama Dubai and leisure developer Tatweer.
"While the merger might result in the creation of a stronger operational/financial entity with better access to funding and ultimately greater control over supply, there is no visibility regarding the strategy of the combined entity," EFG-Hermes said in a report.
The deal, which has an unknown valuation, could lead to a substantial dilution for Emaar shareholders, with Dubai Holding firms unlikely to bring liquidity to the new entity, the bank said.
It added the government ownership level in Emaar could rise to as much as 89 percent from 32 percent.
Emaar's shares have fallen nearly 25 percent since the merger was announced, and were off 6.95 percent at AED2.41 at 0849 GMT on Wednesday. Dubai's index was down 3.5 percent.Ratings firm Moody's Investors Service said late last month it placed Emaar on review for downgrade, and downgraded Dubai Holding to A3 from A2.
The increased exposure of the combined entity to Dubai's fragile real estate sector was also a concern, EFG-Hermes said.
Property prices in the emirate's once-booming real estate sector have fallen 45 percent from peaks in 2008 and are likely to fall as much as 60 percent overall, it added.
Dubai house prices will fall another 20 percent this year as the emirate continues to suffer a sharp economic downturn, a Reuters poll showed last month. (Reuters)